Medicaid Financing for Services in Supportive Housing for Chronically Homeless People: Current Practices and Opportunities. 1.3. What Services Does Medicaid Cover for Permanent Supportive Housing Tenants?


Medicaid eligibility provides access to many health services and a mechanism for paying for them. For beneficiaries, Medicaid covers the hospital services that make up a big part of total health care costs, as well as doctor visits and other ambulatory health services that may be delivered in hospitals or in clinical settings. Some Medicaid-covered services can be delivered in other community settings, including in a person’s home.

Many of the mental health and substance use treatment services needed by people in PSH are not mandatory benefits in the Medicaid program. Instead, states may provide coverage for these services as optional benefits. States may also set additional criteria that determine who is eligible to receive specific services. These “medical necessity” or “service access” criteria may take into consideration diagnosis, health and health-related needs, functional limitations, and/or other factors.

All Medicaid services must be “medically necessary,” clinically efficacious, and cost-effective. CMS has generally given only limited guidance about the criteria or processes that states establish for determining medical necessity or need for services, so states have significant flexibility to set their own.8 States establish these criteria to balance several purposes, including controlling service use and costs, ensuring that the limited services available go to those who need them the most, and avoiding the use of limited resources to pay for services that are not needed or are unlikely to be effective. The degree of state flexibility in setting these criteria depends on whether the service is federally-mandated or a state option, and also on whether the service is offered through a program authorized under a Medicaid waiver approved by CMS.

An important point for the chronically homeless population and those living in PSH is that, while they may be eligible for Medicaid, if they are not seriously mentally ill they generally are not eligible for most community-based mental health services, which are often limited to serving persons with serious mental illness (SMI) or severe and persistent mental illness (SPMI).9 Persons without SMI or SPMI may qualify for a few hours of assessment or stabilization services in the event of a temporary acute mental health crisis. If medically necessary, they may also qualify for emergency and inpatient care, which is most often provided in a local hospital. Medicaid-covered benefits might also include limited counseling services or medications prescribed by a physician (for example, to treat depression). Similarly, coverage for substance abuse treatment and recovery support services usually is very limited.

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